By Tanya Erbe and John Yoak
Many states have implemented incentive programs to offset the costs incurred by manufacturers who integrate sustainability initiatives in order to better the communities in which they work, live and play. The nature of these incentive programs varies by state and is generally tailored to a specific environmental issue. For those manufacturers looking to reap the benefits of making 2016 green, the following are a few of the notable credits and incentives that can help soften the financial and tax burden associated with the investment:
California features programs designed to incentivize the development and deployment of manufacturing technologies that will conserve resources, as well as promote economic development and jobs. These programs include a sales and use tax exemption for manufacturers that use science, engineering or information technologies to improve existing materials, or create entirely new materials, products and processes.
California evaluates applicants and their projects on a case-by-case basis, considering several factors including whether the project develops California manufacturing facilities and the extent to which the project will reduce air or water pollution, increase efficiency or reduce consumption beyond what is required by any federal or state law or regulation. At the local level, the city of Santa Rosa offers a water-specific Sustained Reduction Rebate for every 1,000 gallons of sustainable water use and water flow reduction achieved through hardware upgrades or new technologies.
New Jersey has also identified water pollution as an environmental concern that can be addressed through the implementation of a tax credit program. New Jersey taxpayers that purchase equipment used to treat effluent from a primary wastewater treatment facility that would have otherwise been released into New Jersey waters may take a tax credit against their corporation business tax liability, subject to certain limitations and offsets, equal to 50 percent of the cost of the equipment.
Although keeping the waterways clean is paramount, there are numerous other environmental concerns that states can
address through credits and incentives. For example, Kentucky and Tennessee offer tax credits to encourage sustainable manufacturing and environmentally friendly business practices. In Kentucky, taxpayers that make capital investments over a certain threshold to construct, retrofit or upgrade certain facilities may claim tax credits against their corporation income tax or their limited liability entity tax. This can be an especially taxpayer-friendly incentive, as the credit amount is equal to 100 percent of the tax attributable to the facility, plus up to 4 percent of the wage assessment against employees whose jobs were created by the facility. Similarly, in Tennessee, a manufacturer that makes capital investments over a certain threshold to construct, expand or remodel a facility engaged in manufacturing a product that is necessary to produce green energy may take a tax credit for certain utility charges.
Other states emphasize the importance of limiting the amount of solid waste produced within their borders. For example, Arkansas encourages its corporate citizens to adopt sustainable manufacturing processes by offering a 30 percent tax credit against corporate income tax for taxpayers that purchase equipment used exclusively within the state for reducing, reusing or recycling solid waste. The credit also applies to the cost of the equipment as well as charges related to installing the equipment at the taxpayer’s facility.
These programs demonstrate a movement among states to continue encouraging investment in and development of sustainable manufacturing practices. The creation of incentive programs and credits at the state and local level, in turn, stimulates good corporate citizenship, from which states, taxpayers and society as a whole can benefit in 2016 and for years to come.
Tanya Erbe is the National Credits and Incentives Leader and may be reached at terbe@bdo.com.
John Yoak is a tax manager and may be reached at jyoak@bdo.com.
This article originally appeared in BDO USA, LLP’s “Manufacturing Output” newsletter (Spring 2016). Copyright © 2016 BDO USA, LLP. All rights reserved. www.bdo.com.